A proposed regulation that aims to reduce late-payment fees on credit-card debt could potentially have negative consequences for card companies. According to RBC, American Express is better positioned to handle this regulatory change.

The Consumer Financial Protection Bureau (CFPB), which is responsible for consumer protection, has put forth a proposal to lower late fees from the current range of $31 to $40 down to a maximum of $8. Additionally, the proposal aims to prevent issuers from increasing late fees in line with inflation. The CFPB estimates that this could result in a reduction of late fees by up to $9 billion per year. While public comments on the proposal were solicited earlier this year, the regulation may not come into effect until later in 2023.

However, the Bank Policy Institute, a trade association, has criticized the proposal, pointing out what they perceive as "deficiencies." They argue that if the final rule significantly resembles the proposal, it would be arbitrary, capricious, and contrary to the law. They also believe that it would ultimately harm the very consumers it intends to benefit.

Against this backdrop, RBC analyst Jon Arfstrom has upgraded American Express stock (ticker: AXP) from Sector Perform to Outperform. Arfstrom has also increased the target price for the stock from $197 to $200. He asserts that American Express's strong market position and focus on premium consumers and small-to-medium corporate enterprises mean that the company relies far less on late fees as a significant revenue source compared to its competitors. However, Arfstrom notes that American Express has not explicitly disclosed how much of its revenue stream is tied to late fees.

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